Building Bridges to the Future
Alistair Gray
Experienced Senior Independent Director; Visiting Professor at University of Strathclyde, Loughborough University London and Liverpool Universities; leading European Strategic Management Consultant
The more new businesses you build, the better you get at building them. That’s the key takeaway from the latest?McKinsey Global Survey of more than 1,000 C-level executives?and other senior managers across regions, industries, and company sizes. Business leaders predict that by 2026, half of their revenues will come from products, services, or businesses that haven’t yet been created. New-business building helps bridge that gap.
More urgency.?Launching new businesses was the top strategic priority of more than one-fifth of the leaders surveyed, with 55 percent naming it as a top three priority—nearly double the share who said it was?a high priority for their companies when surveyed in 2019-2020. Directors are now twice as likely to say it’s?the?top priority than they were in previous years.?
Organic growth.?Unlike when they pursue M&A or invest in external start-ups, companies that undertake new-business building can make the most of existing assets and capabilities to create new products, services, or business models. It can help them diversify revenues and keep pace with shifting customers and markets. What’s more, new businesses generate organic growth, which??often creates greater excess returns to shareholders than dealmaking does.
Failing to scale.? Still, only a small segment of companies capture most of the growth from new-business building—less than one in five new businesses achieves annual revenues above $50 million.? Joining their ranks requires learning by doing, which isn’t necessarily a comfortable place for incumbents. A smart approach includes these four factors:
Validation.?One way to start new businesses and make sure they’re on the path to success?is to create a dedicated “growth engine” team?to manage the businesses from launch to scaling to maturity. This team, a separate entity from the parent company, facilitates the free flow of new ideas and focuses support in each stage of a venture’s growth. Validation must also come from outside the parent company: McKinsey surveyed 50 equity analysts to gain a better understanding of the value at stake for new-business building and found that a chief concern was that companies have to demonstrate that ideas are not simply “backyard success stories.” Less than half the respondents believed that internal-only valuations were sufficient proof of a new business’s value.
Longevity wins.?Business building is no longer an optional way to generate organic growth: it has become essential. Organisations that?embrace a start-up mentality and adopt?these approaches?can create a business-building capability - assets, skills and systems - that powers continual organic growth. How’s your company progressing?
Reference: McLinsey & Company - The Shortlist 14 January 2022